High Dividend, Low Volatility Strategy Declined Least

October 04, 2022

In a bruising month for stocks, when broad indexes extended their worst year-to-date declines since 2008, September’s S&P 500 winners were those that fell the least. 

So-called momentum stocks, or those that move along with a trend, declined 6.9% last month, the best showing among 17 so-called factors, according to S&P Dow Jones Indices’ index dashboard for its S&P 500 factor indices which published Monday. High-beta stocks, the most volatile category, declined 11%, the worst showing for the month. 

Year to date, S&P’s “low volatility, high dividend” category dropped 11%, the best showing, while the “pure growth” category, tracking the fastest-growing companies, fell 31%, the worst showing so far this year. 

The yardstick for performance among stocks has so far been about measuring damage, as the S&P 500 dropped 9.2% last month and 24% for the year, on track for its worst year since 2008.  

“When the economic outlook is redolent of unexpected inflation, higher interest rates, and possible recession, the zeitgeist favors risk-off factors,” the report’s authors wrote in explaining why some categories performed less badly. 

The $3.4 billion Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) provides exposure to the S&P High Dividend Low Volatility Index. It was down 11% year to date.  

The $2.2 billion Invesco S&P 500 Pure Growth ETF (RPG), which tracks the S&P 500 Pure Growth Index, is down 31%.  

Comparing the Extremes 

The S&P 500 Low Volatility High Dividend overweights utilities and real estate while underweighting information technology and consumer discretionary. Consider that the S&P 500 Pure Growth overweights information technology and consumer discretionary while underweighting consumer staples (with zero exposure) and communications.  

Given the fact that utilities is the best-performing sector of the S&P 500 year to date, followed by consumer staples, while information technology is the worst-performing sector, it’s not surprising the low volatility, high dividend subindex is at the top of the rankings while the pure growth subindex is at the bottom.  

Looking at volatility, the pure growth category unsurprisingly exhibited the highest volatility over the 12-month period, at 27.3%, while the low volatility, high dividend category exhibited the lowest 12-month volatility, at 13.5%. The low volatility, high dividend subindex exhibited even less volatility than the low and minimum volatility indexes, which were at 14.6% and 15.5%, respectively.  

 

Contact Heather Bell at [email protected] 

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